Published by : Business Standard
The demand for aluminium has condensed sharply following the outbreak of the Covid crisis. The smooth flow of exports has also been dampened due to major contraction in demand. Jindal Aluminium Ltd has abridged production to match this lower demand. Still, the company feels it is better placed than most of the competitors in extrusions and rolling space. Pragun Jindal Khaitan, Managing Director, Jindal Aluminium Limited tells Jayajit Dash how the company’s factories are well-positioned to augment production once demand revives. Edited excerpts:
Q. The global aluminium market is oversupplied. How does this affect Indian producers?
The production of downstream aluminium products has always been in line with the demand in the market. The oversupply in the primary aluminium market has not impacted downstream production or its market dynamics. With the demand for the metal falling amid the economic slowdown caused by the pandemic, the global primary aluminium market has witnessed a significant build-up of primary aluminium inventory. This will lead to depressed prices on the LME and will, therefore, impact the primary producers if they do not reduce their manufacturing costs. They have to be incentivised to do this, and should not be entertained when they come to the government to ask for an increase in import duties. An effective solution to this situation will be to abridge the duties on primary aluminium and an increase in the import duties on downstream aluminium (extruded and flat-rolled products). This measure will encourage the downstream aluminium sector to run their plants at full capacity and cater to the entire Indian demand, thus replacing the cheap imports of downstream aluminium products coming from China and other Southeast Asian countries. This, in turn, will enable a quicker uptake of primary aluminium from the smelters in India, by these downstream aluminium plants running at full capacity.
Q. What is your outlook on LME aluminium prices? Will Chinese smelters evaluate the possibilities of a ramp-up in the near term? Can domestic producers hope to stay profitable at the current price point?
Indian bauxite mining, alumina refining, and smelting are one of the lowest-cost operations in the world. The assets built by the primary aluminium players are relatively new and extremely low cost given the natural resource wealth of India. The LME fall has certainly impacted the aluminium smelters all over the world and is not just limited to the Indian producers. However, it can be said that the inherent demand for aluminium is here to stay. The markets will gradually pick up, demand will rise again and the aluminium prices on the LME will revive. Furthermore, if the LME ensures to stay low for a certain time interval, the international high-cost smelting capacity will shrink, eventually leading to an upward movement in the LME. China is the world’s largest producer of primary and downstream aluminium, which is known to account for about 56 per cent of the international output last year, and the pandemic has had a huge ramification on their markets. China has maintained an export duty on primary aluminium and a subsidy on exports of downstream aluminium. Hence, the fear is that Chinese aluminium smelters might continue to keep churning out metal, thereby incentivising Chinese downstream aluminium players to export cheaper downstream aluminium products into global markets. While the contracting global aluminium prices have hurt Indian (and global) aluminium manufacturers in the short term, an increase in import duty protection for aluminium extruded and flat-rolled products will lead to a resurgence in domestic primary aluminium demand, while also protecting from any possible dumping of Chinese extruded and rolled products.
Q. How has the Covid pandemic impacted your company’s operations, especially exports? Have you faced demand contraction from the key importing countries?
Due to the current global crisis, the demand has declined drastically as segments like construction, electrical, automobile and other industries have not been able to operate to their fullest capacity. The smooth flow of exports was impacted due to the physical constraints on the movement of documents but not majorly in terms of demand. Another reason for demand reduction is the significant build-up of material in transit (imported, domestically, and exports). As far as the company’s operations are considered, they have been limited to the extent as allowed by the central and state government. In order to sustain the company’s operations, we have started our plants at limited capacity following the norms laid down by the state and central government and are abiding by whatever orders are coming the way of industries. The government has rightly encouraged industries to restart. The situation is such that life and work must go on with all precautions to control the virus from spreading. It is not an ideal situation for any government to handle. However, our government has taken positive forward steps to improve the ease of doing business and deregulating various areas of the economy. It should carry this forward in the forms of factor market reforms. This will help turn this crisis into a tremendous opportunity.
Q. In the domestic market, how are you coping up with flagging demand?
In the current situation, primary aluminium being oversupplied, the production of downstream aluminium has relatively been in line with the demand. Our products go to almost every industry of note – construction, electrical, packaging, transport, defence etc. We have built a well-diversified product mix and where there is a loss in demand in one sector, we make up by pushing innovation and new products in another sector. We genuinely believe that we are better placed than most of our competitors in the extrusions and the rolling space. Our factories are well-positioned to amplify the production once the demand witnesses an increase. We also strongly believe that any government thrust on the real estate sector will give a tremendous boost to aluminium consumption and support employment.
Q. What new products/innovations are in the pipeline at Jindal Aluminium?
We are looking at a multitude of market opportunities and believe that there is massive scope for aluminium usage in packaging and transport. These being the two significant areas for us, the company is totally focused on capacity building and innovation. Furthermore, with the government’s impetus on defence manufacturing, we see tremendous potential for Jindal Aluminium to serve the needs of upcoming defence manufacturers.
Q. Amid this worldwide pandemic, how does your company hope to stay profitable? What are your strategies to reverse business headwinds?
The overall demand for aluminium has sharply condensed as compared to the normal conditions and many of our customers have paused production too. Jindal Aluminium has therefore abridged production to match this lower demand. The economic slowdown is bound to happen as a reciprocal effect of the lockdown. Considering the fact that downstream production has been relatively in line with the demand, we have looked at making ourselves more competitive by compressing our processing costs and bringing-in efficiencies in manufacturing at a lower scale. I believe in every crisis there is an opportunity. We are awaiting the government to open up the primary aluminium market for global competition in India, so that downstream aluminium manufacturers can grow and thereby boost the primary aluminium demand in India.
Q. How has the production of Jindal Aluminium been impacted in the throes of this global health crisis? Has the company taken to retrenching employees or salary cuts to save costs?
We are highly focused on safeguarding people, society, and resources. During the period of lockdown, guidelines from the central and state government have been a dependable framework for us to adhere to for best interests and safeguarding our people and society around us. Our production lines have been either modified or halted in line with these guidelines. Our value systems as good corporate citizens have stood the test of time over 50 years now, and the Covid-19 pandemic is no exception. Even in this unprecedented situation, our focus has been to stand with our people, society, and ensure no lives are adversely impacted.